China No Longer ‘An Absolute Gold Mine’ for Yum

A Pizza Hut employee waits for customers at the entrance of a store in downtown Shanghai in this July 31, 2014 file photo.

Carlos Barria/Reuters

Yum Brands Inc.’s move to shed its Chinese KFCs and Pizza Huts marks a major shift for foreign business: Impressing Chinese customers isn’t as easy as it used to be. As WSJ’s Laurie Burkitt reports:

China was once such a lucrative market for the fast-food chain that its operations there were the subject of books and business-case studies. In 2003, The Wall Street Journal quoted a Yum executive describing the market as “an absolute gold mine for us.”

China now presents the fast-food chain with intense competition, an upshift in diners’ expectations and a public-relations landscape fraught with potential pitfalls. Same-store sales in China for the quarter ended Sept. 5 rose just 2% compared with the same period a year earlier, far short of the 9.6% analysts expected. On Tuesday, Yum said it would divest itself of its Chinese stores into a separate publicly traded company.

The new company’s task will be to win back consumers such as Chai Yi. The 26-year-old Beijing teacher was dining Tuesday evening at Pizza Express, originally a U.K. chain that Chinese private-equity firm Hony Capital acquired last year. While eating a 128-yuan (about $20) pancetta and sundried-tomato pizza with a friend, she said she would rather go for the higher-end option when out on the town.